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Wednesday, April 22, 2009

A Lot of Stocks for Beginning Traders

By Rick Amorey

Are investments impossible if you're barely putting aside a decent amount of money for savings? Let's say you make about $25,000 every year. You need to feed yourself, pay the mortgages, spend for gas money, and other expenditures, plus you need to start investing for the future. It's a smart move to do so, even in small amounts, as savings can add up fast if done regularly.

Don't worry about it, Uncle Sam is here and willing to help a citizen of his country. For example, take the statistics over the past ten years. Annually, the stock market returned about eight percent on average, so even if you start with absolutely nothing and invest about ten dollars every week, and match an investment with about eight percent return, you'll have about $8000 in ten years. If you got a better investment, one that goes for about twelve percent in annual returns, you'll even get to ten thousand.

There is one big thing to remember, though; investing with small amounts of money does not mean you put it all in one horse. Any stock investor, regardless of talent, will eventually pick a bad investment that will drop by about thirty percent right before your morning coffee the next day. If that's only a small fraction of your stocks, then it's not so bad. But it would be a financial disaster if that's about a fifth of your money.

It would make much more sense of a small-time investor to go for mutual funds and exchange traded funds. And this is because, for starters, mutual funds provide automatic diversification. Most investors hold dozens of stock, one failing will have a minimal impact on the rest of their portfolio.

And one last thing to remember: I would advise to purchase these funds directly from a fund company. If you're a small-time investor, buying them through stockbrokers won't work, as a lot of them will ask for a big-sized check to open accounts. However, it's not a big problem, and it can be overcome with ease. - 23208

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